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Will Budget 2018 make your dream home a reality?

Granting of industry status has been a long pending demand from the real estate sector and the last Budget saw affordable housing being given this status.

For India’s real estate, 2018 comes with lots of hope – the regulatory changes that were made over the past few months have begun showing positive impact as regards higher levels of transparency and enhanced confidence on part of customers, and quantum of transactions is improving gradually. The Union Government has ‘walked the talk” on some measures announced in the previous budgets, there are hopes that the forthcoming budget will help take things to the next level – so that initiatives take off and execution is expedited to ensure that for India’s home seekers, their ‘dream homes’ become a reality.

The key expectations are listed below:

Industry status: Granting of industry status has been a long pending demand from the real estate sector and the last Budget saw affordable housing being given this status. The benefit of Industry status given to the affordable segment is apparent, and we need to extend this to all segments of real estate. In the upcoming Budget, with initiatives and incentives that are expected, we hope that industry status should be granted to the entire real estate sector which will help in creating surpluses in housing demand along with financing at the lower rate for long-term projects will be possible.

Rental Housing: In Indian cities, the share of rental housing in total urban housing stock is considerably low in comparison to the developed world where it is between 40-50 per cent. With the Indian economy poised to grow at 8-9 percent per annum and huge job opportunities in urban areas are expected, migration is unavoidable. We, therefore, need to construct more rental housing stock to deal with the looming housing shortage in Urban India, and hope the Budget will be conducive to the same.

Standard Deduction – Standard Deduction currently allowed is 30 per cent of the Net Annual Value of the house property. The industry body NAREDCO has appealed to increase the deduction from 30 per cent to 50 per cent to boost the demand.

Taxation:

=>Deduction of Interest on Home Loan for the property – In case one takes a home loan for the purchase, construction, repair, renewal or reconstruction of one’s house property – the interest is allowed as a deduction from the Net Annual Value. Deduction for interest on money borrowed is allowed on an accrual basis. The total amount allowed towards this deduction is Rs 2,00,000 beginning assessment year 2015-16.

In case of a let out or a deemed to be let out property, the entire interest was allowed as a deduction under Section 24 of the Income Tax Act till FY 2016-17. From FY 2017-18 deduction for interest on let out the property was allowed only up to Rs 2 Lakh; which NAREDCO recommends to bring back original deduction under SEC 24 of entire interest amount.

Removal of Taxing Notional Rent – The Prime Minister Narendra Modi has given direction to create “Housing for All” by the year 2022. This necessitates the private sector to create surplus in housing stock, Section 23 of Income Tax Act is directly in conflict with aspirations of the Prime Minister as it disincentives the developer from producing surplus Housing Stock.

In Section 23 of the Income-tax Act, after sub-section (4), the following sub-section has been inserted with effect from the 1st day of April, 2018, namely:

“(5) Where the property consisting of any building or land appurtenant thereto is held as stock-in trade and the property or any part of the property is not let during the whole or any part of the previous year, the annual value of such property or part of the property, for the period up to one year from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority, shall be taken to be nil.”.

The above provision penalises developers who completes the project on time but cannot sell units due to market scenario or inevitable economic circumstances and put these apartments on the rent, income from which is offered to tax. The housing sector has felt tremors of Tsunami’s with reformation policies announced resulted in a slowdown in sales. Taxing notional rent will lead to serving financial implications.

Therefore it is suggested that entities engaged in real estate business should be exempted from burden of tax on notional rent income. Also, government can look upon extending the period of 1year to at least 5 years or government may give credit for tax paid on notional income at the time of actual sale of property if above case is not possible. This is in line with the PM’s dream of housing for all and creating surplus housing on ownership and/or rental basis.

Rationalisation of GST: Speedy rationalisation of the tax structure with a uniform level of rates is the need of the hour. The real estate industry has urged the government to cap goods and services tax (GST) rate across the real estate sector to 6 per cent with Input tax credit, to help boost demand for housing. The real estate industry also expects the Budget to increase the abatement for the land cost to 50 per cent, from the existing 30 per cent, as the cost of land forms the most significant part of any real estate-project cost.

Conclusion:

If Finance Minister Arun Jaitley makes housing, infrastructure, and construction key issues for the Budget to focus on, the multiplier effect on the economy will be extremely positive. There are several aspects that have the potential to trigger growth in realty market and for that, the Budget and related policy changes will have to ensure that the advantages of economic policy changes and new regulatory regime are not diluted. Single window clearance system in place to expedite approvals, ease of doing business policies and Infrastructure boost for perennial job creation is mandated for economic growth traction.